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December 2015

In Egypt, 2015 started on a very optimistic tone which was set by the first ever Egypt Economic Development Conference, held in Sharm El-Sheikh in March, which resulted in approximately USD 125 billion of investments in Egypt. “Mega projects were introduced for the first time in decades,” says Ayman Sami, Country Head Egypt, JLL.

Market performance

Whilst monitoring the performance of the office, residential, hotel and retail asset classes, JLL observed mixed performances throughout the year, with residential holding steady and continuing to act as a safe haven to hedge against inflation and the Egyptian Pound devaluation. “The residential sector is considered one of the sectors with the least market risk and had proved to be a good way to protect funds from devaluation or currency risk,” Sami says.

The reason for this is that Egypt’s residential sector is fuelled by strong local demand – the country has very strong fundamentals with a young and fast growing population, creating a strong demand for housing.

However, JLL has identified a serious shortage of affordable housing in Cairo in a new study titled Middle Income Housing in the Middle East and North Africa. According to the study, there is an increased recognition of opportunities in this sector of the market and the need for government intervention and partnerships with the private sector to develop new projects for middle income households.

The office sector witnessed mixed performances depending on the location with New Cairo’s second sector achieving higher rental growth and other areas like West Cairo showing slight signs of recovery, Sami says, adding that East Cairo still remains the preferred destination for most multinational corporations. For example, Siemens is the latest multinational tenant to leave the city centre in favour of New Cairo where they will occupy 6,000 sqm of office space, JLL reports.

Whilst retail showed slight growth, inflationary pressures dampened consumer spending power which negatively affected the performance of some retailers. “This reduced performance puts downwards pressure on the level of rent, however, we can say that the performance is slightly better than the preceding years in some of the larger regional and super-regional malls,” Sami comments.

On the back of its strong fundamentals, the Egyptian retail market is experiencing increased foreign investment. In Q3, Saudi-based retailer Azizia Panda United (APU) has announced that it will develop 16 new supermarkets across Egypt, JLL reports, while Emirati-based developers MAF and Emaar are undertaking major new retail projects in Cairo (the Mall of Egypt and Emaar Square in Uptown Cairo).

Lastly, although the Cairo hotel market is likely to benefit from currency devaluation with tourist numbers having increased by 7 percent year-on-year in July 2015, the Egyptian hotel market is still struggling to recover. The recent ban on Russian flights has added to the negative impact of this hard hit sector, Sami explains.

New Suez Canal expansion

In August this year, Egyptian President Abdel Fattah El-Sisi officially inaugurated the New Suez Canal, a USD 8.5 billion project which creates high hopes for the Egyptian economy. It involved building a 35 km long bypass along the 193 km long existing canal and deepening it. Egypt hopes to double the amount of ships per day crossing the canal by 2023, and to increase revenue from the current annual USD 5.3 billion to 13.2 billion by 2023.

The New Suez Canal is also creating major real estate development opportunities in Egypt, says JLL. “It was planned to attract major businesses around it with logistical, industrial zones, shipyards, assembling plants, etc. With this plan in place, this should roll over into the provision of housing for staff and workers, which would then require shopping areas, schools, entertainment, etc.,” says Sami.

Outlook for 2016

Ayman Sami maintains a positive outlook for 2016. He believes that the main challenges in the year ahead will be to manage the exchange rate of USD and “for developers, investors, owners, occupiers all to reach a formula on dealing with any potential currency devaluation in a way that will not impact their bottom line negatively,” he says.

According to the expert, the lack of USD availability will also hinder the growth of retailers and businesses that rely very much on importing their products or raw material. “We hope to see sources of foreign currency improve next year and I believe that even though we will be facing some challenges, the strong fundamentals of this country cannot be ignored and the long term potential is quite big,” Sami concludes.

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